One-size-fits-all benchmarks ‘are inappropriate’

This is the view of a discretionary investment management specialist, who says traditional benchmarks are often inappropriate. Such benchmarks often fail to adapt to changing market and economic conditions.

Hichens Investment Management managing director John Howard-Smith says that despite several shifts in economic and stockmarket cycles, the income, growth and balanced portfolio benchmarks produced by the Association of Private Client Investment Managers and Stockbrokers have remained static for five years.

“These types of static benchmark fail to reflect an individual investor’s changing objective over time,” he adds. Instead, he says, benchmarks should be set at the outset and reflect what the investor wants to achieve in real terms.

Additionally, he feels that instead of being measured against peer group benchmarks, portfolios should be measured against more tangible targets such as inflation.

Howard-Smith says: “Hichens Investment Management is seeing a shift in client attitude, with an increasing number requesting a more personalised investment. In fact, 50% of new private clients are requesting bespoke benchmarks for their portfolios.”

This, he adds, reflects a general trend within the institutional market, where a decade ago less than 20% of segregated pension schemes had bespoke benchmarks. Today, nearly 90% use them.

“Relative performance to peer group is irrelevant to many clients. If their portfolio is making a loss, being told they beat the competition is of little comfort. They want benchmarks relative to their own needs,” argues Howard-Smith.